Westar complains about KCC order

Topeka utility says it was shorted on profits, wholesale sales

Topeka  While state regulators sided with Westar Energy Inc. on some key issues in a recent rate-setting order, company officials said Friday that the utility was shorted on profits and wholesale power sales.

Top Westar officials said they haven't decided whether to ask the Kansas Corporation Commission to reconsider parts of its order, which increases the electric utility's overall rates by $3 million.

The order, issued Wednesday, also allows the company to pass along fuel and environmental costs directly to its 655,000 customers - which consumer advocates say will be far more expensive to ratepayers. Changes will show up on customers' February bills, Westar said.

Topeka-based Westar, the state's largest electric utility, had sought to increase its rates $84 million and had argued the extra revenue would cover rising operating costs and help maintain customer service programs.

"Focusing on the overall financial results, we are, of course, disappointed," Mark Ruelle, the utility's executive vice president and chief financial officer, said during a telephone conference call for financial analysts Friday, "particularly when we've accomplished so much for our customers."

Commission members have praised Westar's current management, which took over after David Wittig, former chief executive officer, resigned in December 2002.

Westar abandoned a strategy adopted in the mid-1990s of diversifying its businesses. Under KCC pressure, the company sold almost all its nonutility assets and cut its debt from $3.6 billion to $1.7 billion.

Earlier this year, a federal jury convicted Wittig of looting Westar while serving as its top executive.

The commission arrived at a $3 million rate increase by settling regulatory and accounting issues.

The KCC sets Westar's profit because the utility has a monopoly wherever it provides retail service. The company proposed a 11.35 percent increase; the commission said 10 percent. The difference is $30 million in revenues annually.

Ruelle said Westar will earn a lower profit than other utilities. The company has said if it doesn't earn a big enough profit, borrowing money for future plant construction and maintenance could become more difficult.

But attorneys representing Westar customers noted that the commission is eliminating risk for Westar by allowing it to pass on fuel and environmental costs. Previously, the commission set overall rates, and Westar had to absorb unanticipated expenses.

"I thought it was extremely generous," said Jim Zakoura, an Overland Park attorney representing some of Westar's largest industrial customers.

And David Springe, chief attorney for the Citizens' Utility Ratepayers Board, which represents residential and small-business customers, said: "Frankly, capital is fairly cheap right now. Utilities are viewed as a fairly secure investment."

Westar officials also don't like the commission's order because of how it treats wholesale sales of electric power to other utilities, worth about $36 million annually. The commission said the money earned from wholesale power will be averaged over three years, then deducted from what consumers must pay.

The utility argued that it should be allowed to keep a portion of the revenues. Under the KCC order, Westar has no incentive to increase such sales, said Kelly Harrison, the company's vice president of regulatory affairs.

But Springe said Westar had a legal duty to make its operations as efficient as possible for consumers and called the company's statements "wholly irresponsible."

Zakoura noted that Westar generates power for wholesale sales at plants built with ratepayers' money, to serve ratepayers.

"As long as we're paying every dime for the plants, you're doggone right every dime ought to be credited back," Zakoura said.

Westar shares have declined 72 cents, or about 3 percent, since the commission issued its order. In trading Friday, shares were down 31 cents, at $21.50. During the past 52 weeks, the range has been from $21.07 to $24.97.